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Eurotax Proposals: A ‘Knee-Jerk Reaction’ to Eurozone Debt Troubles

16 Aug 2011

"Last night's shock announcement by Chancellor Merkel and President Sarkozy proposing Europe-wide taxes on financial institutions and transactions to help the Eurozone deal with its debt issues and shore up confidence, could create yet another hurdle for member countries and companies in the slow race to recovery.

"This talk of Tobin or Robin Hood taxes is nothing new. Sarkozy has been calling for financial transaction taxes across the world since the credit crunch arrived in 2008 and in August 2010 the EU tried to push very similar proposals only to meet strong resistance from member states.

"The proposed taxes are, in part, a knee-jerk reaction to the debt difficulties currently faced across the EU and the proposed 'raid' on EU jurisdictions with such blanket taxes is ill-thought out and compromises the bespoke tax systems that have been developed over many decades in individual countries.

"Merkel and Sarkozy are claiming that Eurotaxes will help calm volatile markets, yet the opposite could be true as they are likely to promote distortions in the market as investors seek assets not affected by the taxes. This is aside from the longer term impact that implementation is likely to have on transaction volumes in Europe's financial centres

"What is different this time is that Chancellor Merkel has performed something of a u-turn. Germany, as recently as 2010, opposed Eurotax proposals arguing that tax issues are for individual member states.

"A blanket Europe-wide tax on financial transactions will undoubtedly hit certain countries harder than others, impeding their recovery from a torturous few years of economic downturn. Particular business sectors, such as financial services, the backbone of key economies such as the UK, would also be much worse affected than others, at a time where fears of a double-dip recession are rife.

"Whilst we and many multinationals welcome steps towards improved harmonisation, this type of knee-jerk blanket tax is simply too complicated to implement and would require a fundamental overhaul in country-specific tax policy. In the current global economy where there is a very real need to focus on recovery, an overhaul of global tax harmonisation appears still to be light years away."

Frederic Donnedieu de Vabres, Chairman of Taxand, the world's largest independent global organisation of specialist tax advisors to multinational businesses.